2023 panned out to be a year of transition for the fintech, payments and crypto sectors. Regulation ramped up in the form of PSD3 and new emerging trends occurred in the development of such areas in embedded finance and more. 

Reflecting on the past year and forecasting what may take precedence in the year ahead, Reinis Simanovskis – Co-Founder and CTO of Finfra – shared his thoughts to Payment Expert on topics such as the fintechs and bank collaboration, Environment, Social, and Governance (ESG) financing and why you should expect the unexpected in 2024. 

Fintech has never moved slowly, but what a year 2023 has been even by our accelerated standards. I can’t remember the last time rapid and unpredictable changes reverberated so intensely across the industry, one after another. Who could choose just one? 

We have the rapid adoption of artificial intelligence solutions, the news-grabbing fall of Sam Bankman-Fried and FTX, the bottoming out of cryptocurrency, alt-finance’s major embrace of alternative lending, the list goes on. 

This year in fintech was characterised as much by unprecedented and widespread public attention as it was by behind-the-scenes implementations related to lending and AI that have only just begun to bear fruit.

A fruitful truce

Speaking only for myself, the 2023 seachange that comes to mind as one of the biggest developments for the fintech world is, in fact, directly related to the traditional banking sector. That sector has viewed fintech rather suspiciously since our heady free-for-all early days. 

That period is over, and our legitimisation efforts have not been all for naught. In fact, 2023 is the year the traditional banking world came around en masse. Banks are no longer viewing fintech companies as competitors – or at least not exclusively as competitors – but as serious potential partners capable of entering into mutually beneficial collaborations. 

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Fintechs can provide the middleware to products that benefit the large customer bases of these traditional banks, and increasingly, they are being asked to do just that.

These changes are particularly felt as they relate to embedded lending. Among the highest-profile examples of this happened in August, when HSBC and Tradeshift announced a joint venture specifically focused on embedded lending and financial service apps. 

There’s a certain reciprocal effect here: fintech companies have the agility and the technological savvy traditional banks often lack, and traditional banks have the capital and personnel to sustain and grow the innovations we’re seeing pioneered in the fintech sphere. There’s no going back to separate lanes and any shared suspicion now.

ESG rearranges the priorities 

This mindset isn’t the only thing that underwent a major shift in 2023. Responsible growth has gone from a marketing bauble to a serious priority; Environment, Social, and Governance (ESG) financing has new momentum. 

ESG financing used to be more of a box to tick or, at worst, an area defined more by lip service than action. That’s over as of this year. We’re no longer living in a world where the financial industry is driven solely by returns. Responsible growth is now something stockholders demand.

But these new priorities are already facing significant challenges, and that’s also a new paradigm as of 2023. According to Ian Simm, the CEO of asset management group Impax, the demand for environment-focused investable projects exceeds the actual amount of these investable projects. 

Governments aren’t moving fast enough with green implementations, despite the deluge of scientific evidence that efforts must multiply quickly in order to not cross the 1.5 degree warming threshold. The funds are there and the investors are willing. It’s the projects and initiatives that are lacking.

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Living in a country like Indonesia, which is especially vulnerable to climate change and subject to exaggerated socioeconomic inequality, I’m particularly attuned to this changing dynamic. 

I also think fintech must present itself in conjunction with traditional banks to governments as a real ally in expediting green projects worthy of major investment. Moving forward is a collaborative effort, and it would be ridiculous to suggest otherwise.

New paradigms, new directions

Where this is all heading in 2024 is anyone’s guess, but let’s make a few educated ones. Customisation is the new norm, and we’re likely to see that continue on an increasingly individualised level. 

So is an integration of artificial intelligence, which is already upending customer service processes and the teams who manage it. Small teams of people can do the same amount of customer servicing that once required teams ten times their size. 

What qualifies as a “high value” customer interaction warranting personal (human) attention is changing too. We should expect more trial-and-error here that produces both negative pushback and positive developments.

Maybe the biggest takeaway from 2023 is that while the ‘Wild West’ feeling of fintech’s early days is long behind us, the sector is still subject to massive and unpredictable paradigm shifts. In other words, expect the unexpected.